Frosty Negotiations

The major obstacles to reaching a trade agreement between the EU and UK are now down to two: fishing and ‘level playing field’ rules (on state aid, labour, environment and tax). Beyond any resolution of these lie some troubling issues for the UK.

Britain’s chief negotiator, David Frost (Frosty as he is known in Whitehall) is usually seen in public with a smiling face but his stance has been firm. The UK clearly and rightly wants to minimise disruption while gaining the final right to decide what any sovereign state should be able to decide for itself.

Frost - FroideurThe Prime Minister, his Cabinet, the majority of his MPs and his party, plus his Chief Negotiator seem well-aligned with these aims. The majority of voters too are ready to accept the consequences of leaving on sub-optimal terms, many who voted to remain have noted the inflexible, high-handed approach of the EU and accept that leaving is now not only inevitable but necessary.

Across the table Frost faces the Gallic froideur of Michel Barnier, and behind him a generally hostile and implacable EU leadership (Commission, Council and Parliament). So are compromises likely?

Fishing

The consequences of no agreement could mean that the UK reasserts sovereignty over its waters but is unable to secure them through lack of protection vessels and sailors to man them. French fishermen in particular have demonstrated violent militancy in previous disputes so this would probably happen again and British fishermen in their mainly smaller boats will be at risk. Furthermore we don’t eat most of what our boats catch and the EU is the UK’s biggest fish-export market. Finally, foreign fishermen and coastal ports could have their established livelihoods threatened.

Whilst the economic importance of the fishing industry is tiny for the UK, the ultimate say over what happens is a major signifier of independence under international maritime law. The answer must surely be to guarantee progressive change over a period.

Level Playing Field (LPF)

State aidA Tory government surely cannot want to return to the days of ‘Neddy’ (NEDC) when in the 1970s Whitehall decided which businesses were worth spending taxpayers’ money on. That didn’t help British Leyland, although Rolls Royce was saved to become a global supplier of aero engines. Some government help is essential during covid recovery. The EU has permitted massive state aid in areas such as airlines [1], it would be absurd and dangerous to let it determine what help British firms should get. Again, some assurance of proportionality, for a period, could be agreed; it is pretty obvious that the UK would be unlikely to exceed overall what France or Germany are going to spend.

The UK is not an outlier on labour or environment regulations, in many respects it is ahead of the pack [2] Ireland is the outlier on corporation tax. The WTO covers anti-dumping and its rules on fair trade are sufficient to satisfy the EU in other deals it has made. The UK is not asking for more and must not settle for less.

Ultimately the EU should accept that an independent country will make its own rules and have the confidence to compete on its own terms, or to retaliate in future against unfair practices.

So Then What?

To clear these two hurdles a fair compromise is clearly possible and sensible for both sides, depending on their negotiating goals. The EU’s Chief Negotiator has in fact indicated his willingness to compromise on fishing but was slapped down by Council members under pressure from their local fishing interests. Throughout the interminable negotiations special interests have surfaced that have nothing to do with Brexit, such as Spain’s desire to further its dispute with the UK over Gibraltar, and Ireland has cynically used border issues to pander to republican and anti-British sentiment at home. This is a case where we agree with Guy Verhofstadt about members behaving in an un-European manner [3], if only the Commission could override national interests it could end such selfish behaviour, its fishermen could sink or swim if the greater good demanded it.

The LPF issues were moved from the formal international treaty, the Withdrawal Agreement (WA), to the Political Declaration (PD) in Johnson’s quick renegotiation of Theresa May’s appalling version. However the signed WA still says of the PD that both parties will use “their best endeavours, in good faith and in full respect of their respective legal orders…” where ‘best endeavours’ has strong legal implications.

Beggar-thy-neighbour

The WA leaves the UK potentially on the hook for a lot of money via its European Investment Bank (EIB) commitments and other financial demands. There is still £33 billion to pay into the EU’s budget (some of the £39 billion has already been paid during Transition). However the biggest issue is the risk from the UK’s continuing involvement in the EIB – see the next section.

Meanwhile France wants a further £30 million from the UK to pay for its duty under another international treaty, the Dublin III Regulation, to stop illegal migration across the Channel (it’s already had £100 million for stopping an estimated one fifth of migrant boats from launching). The aggressive non-cooperation also includes mobile phone/data roaming charges and medical cover for travellers. Plus they want to tie in UK defence spending yet exclude us from the Galileo satellite programme, towards which the UK has contributed £12 billion that will not be repaid.

Who can forget Theresa May’s phrase,”No deal is better than a bad deal“? Was she stupid, weak or mendacious?

Withdraw the Woeful Agreement

The UK faces huge economic challenges resulting from the covid-19 pandemic, amongst the worst in Europe, and yet its funds are being called upon to bail out others, without reciprocation. The EIB has been drawn into the EU’s €750 billion Recovery Fund; for example €2 billion will be invested in Italy’s healthcare system to aid its recovery from the pandemic. It is very unlikely that this will ever be repaid [4]. There are other loans, mainly to the most troubled EU economies (to Greece for example) and there are past investments from which the UK will gain no benefit from any successes but has underwritten the failures, thereby risking up to an estimated £160 billion.

The UK has been involved with the EIB since 1973; its initial investment of £3.5 billion is now estimated to be worth more than the ‘divorce’ payment ( it’s about £37 billion in today’s money) but under the terms of the WA only the principal will be repaid – in twelve equal, annual payments. No profits, interest or inflation adjustments will be made to any investments. It will be another twenty years before the UK is out of the EIB; any investment programmes started before the end of Transition must be completed.

IndependentThere are other issues with the WA/PD that are so unfair to the UK that the legality could be challenged in international courts; for example no right to vote breaches ECHR principles. If, as the EU has said many times, “Nothing is agreed until everything is agreed” then we should note that the UK entered the withdrawal process on condition of an arrangement with the EU that “enshrines UK sovereignty and secures an FTA”. This latter quotation comes from a paper by the Centre for Brexit Policy [5] which believes a successful legal challenge can be mounted – we recommend reading at least its executive summary.

Conclusion

Even if the obstacles are overcome and a free trade agreement is reached a poisonous relationship will emerge unless the WA is renegotiated or repudiated.

[1] All Quiet On The Brexit Front: The Sloping Field

[2] Questions and Some Answers (Q3) or Answers (Is the EU protecting the environment?)

[3] Rescue Action, Reaction and Inaction

[4] Italy Missing the Target and TLTRO Rugby

[5] Replacing The Withdrawal Agreement – Centre for Brexit Policy.org.uk

Downloadable from here:

https://centreforbrexitpolicy.org.uk/publications/replacing-the-withdrawal-agreement-how-to-ensure-the-uk-takes-back-control-on-exiting-the-transition-period/


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